Just when ferrosilicon industries face a downturn, their BIT exemption comes to an end

Slump: Ferrosilicon industries along the southern belt of the country are feeling the impact of the basic economic principle of demand and supply.

There is no demand, ferroalloy stock is piling up and prices are going down, claim industrialists.  Compounding their fear of a bad year of business, the 30 percent business income tax exemption for those industries earning foreign currency and established between January 1, 2004 and December 31, 2009, has come to an end in December 2014.

Forecasting a slow business, industrialists are asking for uniformity in regulations on the 30 percent exemption, calling it unfair.  This is because industries, established between January 1, 2010 and December 31, 2015, will be exempted from corporate or business income tax for a period of 10 years, as per the Economic Development Policy (EDP), 2010.

The general secretary of the Association of Bhutanese Industries (ABI) association, Jochu Thinley, said there was no uniformity, as most of the industries in Pasakha were established during 2004 to 2009. “It’s not fair,” he said.  “Currently industries established in 2004 gets 10 years of tax exemption till 2014 where as industries established in 2009 gets only five years exemption until 2104, and ironically industries established in 2010 gets 10 years exemption until 2019.”

Jochu Thinley also said the government was currently working on one comprehensive policy document, to which ABI had given its recommendations.  The policy will be out in July this year, and the association is hopeful the industries’ concerns will be considered.

Industrialists say the exemption was one of the major features that helped industries compete in the international market.

An industrialist, wishing anonymity, said that ferrosilicon is a global product, which needed to compete in the global market.

“It goes by the international standards, which we have to maintain,” the industrialist said, adding competition was with huge economies such as China. “The exemption have had helped us, but not anymore.”

While price in recent weeks have come down by more than Nu 10,000 a metric tonne, and from Nu 78,000 to Nu 65,000, sales had been slow, sometimes zero, said industrialists.

“Industries are having a tough time,” the ABI general secretary said.

An industrialist said he had stock worth Nu 200M (million) in his factory today.  Price was decreasing and the value of the product was dropping, he said, adding that the situation was bad with the industries.

Another factor they were not still happy was the increase in power tariff.  Industrialists said they were able to compete in the international market with the power advantage, which, they said, was not there anymore.

The third cycle of revision will come to effect from July this year and continue until June 2016.  For high voltage users, such as the steel and ferrosilicon factories, the tariff will be revised to Nu 1.96 per unit from Nu 1.81.  It is an increase to Nu 180 from the second quarter’s Nu 155.

The association is also worried about 16 ferrosilicon plants that are coming up in Malaysia.  These plants would produce 600,000 tonnes of ferrosilicon annually, while companies in the country can produce about 110,000 tons.

This will make the market more competitive, which will eventually decrease the market for Bhutanese product.

China is also on the verge of removing the current 25 percent export duty on the companies that produce and export ferrosilicon, which the industries here fear will flood the international market, making it even more competitive.

Industries in Pasakha had also signed an agreement with the National Environment Commission (NEC) in putting up measures to control pollution.  Jochu Thinley said there are some companies that are investing about Nu 5 to 6 millions for pollution control measures.

As the deadline is scheduled to end this month, the association feels the investments were huge for the already-affected industries.

By Rajesh Rai